Economics #3 - Capital

Economic Factors #3 Capital

According to economists, there are four factors to economic production: 

-1 Land - agriculture, building, living - for most businesses/enterprises you need land

-2 Labor - people, workers

-3 Capital - money (today)

-4 Entrepreneurship - leadership, insight, vision

Today we are looking at money - that is capital!!

We have the adage “the poor get poor and the rich get rich” - but frequently it is from the wise use of money.

Let’s say you want to grow organic food.  You’ll need land (do you have the money to buy the land?).  You’ll need labor - to plant, grow and harvest the crops (do you have the money to pay the laborers?).  And, you will need leadership (that is entrepreneurship) to direct and manage the process (do you have money to pay the leaders?  Are you going to work for free?)

Capital

“Capital has been defined as that part of a person’s wealth, other than land, which yields an income or which aids in the production of further wealth.”

“Obviously, if wealth is left unused or is hoarded, it cannot be considered capital.”

“Capital serves as an instrument of production. Anything which is used in production is capital.”

For most Americans (or most people), we start out in part-time jobs as high school students.  I delivered newspapers, but in most cities that job doesn’t exist anymore with fewer papers and most papers as morning papers.  The Cedar Rapids Gazette (at that time) was an evening paper, forty-five cents a week - and not only did I have to deliver the paper, I had to go door to door to collect the money.  Plus, Sunday papers were (a) heavy; and (b) delivered in the morning before church.  

My first ‘real’ job (as if delivering papers was not a real job) was as a busboy at the Hotel Roosevelt during my senior year in high school.  It was interesting.  Aside - today it seems like the servers’ bus (clean) your tables, but on that day, there were those that cleaned the dirty dishes off the tables and regardless of gender were called ‘busboy’.  

In the summer before college, I worked on a furniture delivery truck (a great motivator to get a college degree!!!).  And, all through college I worked summers at a school supply warehouse.  At college, I was a resident assistant my last two years.  When I graduated from college, I had no debt - unlike many college students. 

After college, I took my first teaching job - at $6,500 (which included extra money for being the assistant basketball coach and head baseball coach - since the previous math teacher had coached both of those things).  I paid $75 a month for rent.  I paid off the car I had bought (a used Plymouth Barracuda - I wish I had it today!!!) and saved money!!  

I went back to college and got my master’s degree - and actually came out ahead financially!!!  I was a graduate assistant in the math department and a dorm (oops - resident hall) director - which paid a small stipend plus free room and board.  Plus, I was still working in the summer.  

I had few expenses - and life was good!!!  But, I had fallen in love and a year after graduating from college with my master’s degree, we married and in touch with the American Dream - went into debt buying a house - and then cut my wife’s small income out as we had our children and she was a stay-home-mom.  

Back to economics.  When I have taught about economics and capital in classes, I remind students of what are generally the best-looking buildings in most communities - banks!!  Banks make money out of loaning money.  They use their capital to raise more capital.  

In economic terms, you use your money (capital) to buy into businesses, as investments, or even in buying homes - that you hope will appreciate and be of more value.

If you use your capital wisely, you can have a nice house, a new retirement, and a nice life.  Ben Franklin wrote, “A penny saved is a penny earned”!!!  Even back in that first job after college, I paid off my debts and saved money for graduate work.  

I am not an investment expert, but I have trusted financial experts (in my case as an educator, TIAA.  Yes, like almost all Americans I have made my ‘investment’ in Social Security, in South Dakota Teacher Retirement System, and at Quinnipiac University in TIAA (Teacher Insurance and Annuity Association). 

In terms of economics, I don’t have land (I ceded that to Connie), I have used my labor to earn my money and I have let my money build more money through investments.  

Tomorrow, management (or entrepreneurship!!!)  WOOO!!!

Hugs!!

Karen

(Then maybe some history views again)

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